Getting divorced or splitting up with your partner when you have an outstanding joint mortgage can be difficult.
Statistics have shown January is the most likely month for couples to start divorce proceedings. Aside from the emotional distress, there is a raft of decisions and paperwork that needs to be sorted.
How does a divorce affect my mortgage?
If you are going through a divorce and both you and your ex-partner’s name are on the mortgage, you are both responsible for paying the mortgage until a financial settlement is reached. This is true, even if one of you has moved out of the family home.
When two people take out a joint mortgage, both agree to be equally liable for the debt until the mortgage is paid off, not just while you live in the property.
As soon as you know you will be separating, let your mortgage lender know, especially if you could struggle to meet your mortgage payments. Banks are usually sympathetic towards couples going through divorce or separation and may be willing to offer you a payment holiday to help ease the added financial strain. This can give you some breathing space to deal with the initial separation.
However, the original mortgage agreement will still be in place, and a long-term solution will need to be reached.
How to protect yourself when buying a home together
It is recommended that before committing to buying a property with your partner, spouse, family or friend, you sit down and talk openly about your finances. In reality, individuals rarely have identical financial situations and contribute equally. Always be open about your finances. In this conversation you should also discuss if someones parents are contributing to the deposit, which can make things a little more complicated.
Sign a Declaration of Trust
Signing a Declaration of Trust, also known as a Deed of Trust, is a good idea if joint buyers are not contributing equal amounts of the deposit or mortgage payments.
The Declaration of Trust is a legal document drawn up by a solicitor. It sets out how any equity would be divided if the property was sold, or remortgaged to remove one part from the deeds, in future.
It can be especially useful if one party’s parents are gifting or lending a couple money towards their deposit, to avoid future disputes about whether their ex-partner needs to pay them back.
Homeowners should make sure the Declaration of Trust is updated if one party starts contributing more or less to the cost of the home, or if significant money is spent on the property – for example building an extension.
Joint Tenants or Tenants in common?
When two or more people record a property purchase with the Land Registry, they have the option to either register as ‘joint tenants’ or ‘tenants in common’.
If you choose Joint Tenants you will both have equal shares of the property. If one of you dies, the share will be passed to the other tenant.
If you choose Tenants in common his means that each owner has their distinct share of the property.
There are two main benefits to being tenants in common. First, the shares each owner has in the property do not have to be equal. Instead, they can specify the percentage or monetary value in the home that belongs to them at the outset. That being said, you can still be Tenants in common if you do have equal shares.
The other benefit of being tenants in common is that, if one party dies, their share in the property does not automatically pass to the other co-owner. They can leave it to someone else by including this in their will.
With a joint tenancy, the ownership would automatically pass to the other party – even if the deceased had specified otherwise in their will.
Keep track of who pays what
It may not feel especially romantic, but it is also a good idea for each member of a couple to pay their share of home-related costs from their own bank account, rather than transferring it to the other partner for them to pay in full.
This creates a paper trail which can avoid disputes over who paid for what if the relationship later breaks down.
You can’t ‘divorce-proof’ your home entirely
While the above are all useful steps to take, many of them rely to an extent on a break-up being relatively amicable.
If your divorce has not been amicable and you disagree over who is entitled to what, you may have to go to court. You should be aware that a simple 50/50 split rarely occurs when the courts hear divorce proceedings.
Courts consider a wide range of circumstances when deciding what happens to the marital home. If children are involved, their well-being will be the court’s primary concern. They will also consider both parties’ financial circumstances when making a decision.
If your divorce has reached this stage, you will need to seek independent legal advice.
And whatever steps you take to divide up your property ownership, your mortgage lender will still regard anyone named on the mortgage as having joint liability – meaning that if one partner doesn’t pay, the other will be forced to do so or risk damaging their credit rating.